Filing for bankruptcy is a common tool used by both business and individuals as a debt relief option. Business bankruptcy, however, varies slightly from personal bankruptcy. In any business — whether it be a partnership, corporation, or sole proprietorship — the financial responsibility must fall on the business itself and not on a select individual. What must also be considered is how much and what type of debt is owed, whether the business will continue to operate during the bankruptcy process or shut down, as well as a few other considerations. With these questions answered by an experienced Louisiana bankruptcy attorney, a business owner will know what type of bankruptcy is most appropriate.
Chapter 7 bankruptcy is the best option for businesses that are expected to close as a result of their insurmountable debt. This is also referred to as a liquidation bankruptcy and it is mostly considered by business owners who understand that reconstructing their debt is simply not feasible. This type of bankruptcy is also appropriate for any business that does not have any valuable assets that could be given up as a form of debt relief. If a particular business is simply a result of an owner’s personal skills, business reorganization would be insufficient and Chapter 7 bankruptcy will be most necessary.
What would happen as a result of filing Chapter 7 bankruptcy is that a court-appointed trustee would claim possession of the business’s assets and distribute them among creditors. After the trustee receives payment and the creditors receive the assets, the sole proprietor receives a “discharge.” A discharge simply states that they are no longer legally obligated to repay the debts.